Refinancing a House
When is the right time to refinance a house?
Well, people used to say that you should wait to refinance until the current mortgage rates drop at least 2% below what your current rate is. And, while this isn’t bad advice, it isn’t the only determining factor you should consider when deciding whether or not to refinance a house.
Here are some other factors that might make it worthwhile to refinance a house even if the current rates aren’t two percent or more lower than your current rate.
1) You have improved your credit score and/or credit history. – With improved credit, you can often secure better rates on your home loan. So, if you’ve resolved some credit problems in your past and/or your credit score is significantly improved since your first loan, it might be worth it to refinance.
2) The value of your house has risen significantly. – Maybe you’ve put in some time and money on remodeling or improving your home? Maybe the market has improved since your original loan? In either case, it might be a good time to look at refinancing.
3) Your ratio of income to debt has improved. – If you’ve paid off some other loans, or perhaps gotten a promotion and increased wage, then it might also be time to look at refinancing your home.
4) You want to get out of an adjustable-rate mortgage. – Oftentimes it’s to your advantage to get into a fixed-rate mortgage.
What do you need to know about refinancing a house?
There are definitely some common mistakes that people make when they refinance their house. Some of these things sound basic, but they are important and people often do not take them into consideration.
1) For a refinance to make sense, you’ll need to stay in your house long enough to meet the break-even point. But, the problem is that many people don’t understand when this point is. It’s definitely to your advantage to look at using an online refinance calculator to figure out how long you will need to stay in your new loan to make the break-even point.
2) Why are you refinancing? This sounds silly, but if you are refinancing to pay for a luxury, then it is probably not the best decision. If you are refinancing to more quickly pay off high-intrest loans, then that makes more sense. Basically, don’t refinance your home to buy a speed boat or a trip to Europe.
3) Talk to your current lender first. It’s easy to resent someone when you have to pay them each and every month. But, the good thing about your existing lender is that they already have all of your information. This can save a lot of time and effort in the refinancing process.
Long story short, you need to do your homework before you look at refinancing a house. The fact that you are reading this is a good sign. Hopefully some of our guest articles will give you more information that will help you decide if refinancing is right for you.
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